Finding your true cost of processing services in today’s credit card processing maze is not an easy task. The challenge for business owners is sorting through multiple offers from credit card processors, all claiming to be the best deal. Which is better a small transaction fee or a bundled rate? Is a monthly fee less expensive than an annual fee? What about equipment, should you lease, rent, or purchase? The answer is it all depends.

Young woman handing waiter credit card, close-up

Every business has its own unique set of circumstances that must be considered when making a financial decision like choosing an electronic payment services provider. For example, whether a bundled discount rate or a rate plus a transaction fee makes better financial sense depends primarily on the dollar volume your business processes each month and the average transaction amount. The lower the average transaction amount, the greater the percentage of the sale a transaction fee represents. The same is true for equipment needs; there are benefits to all three equipment financing options.

But one factor that can be easily determined is what you are really paying for your processing services one all additional fees and charges are considered. This is not always as simple as it may seem, since just about every credit card processor prices their services differently. To truly asses your cost for credit card processing, you must look beyond the discount rate you are paying, and instead calculate the effective rate. The effective rate takes into account all fees paid for the month in relation to the total dollar volume processed. It is the most accurate measure of what you paid.

The effective rate is found by dividing your total processing charges for the month, including discount rate amount paid, transaction fees, and monthly fees, by the total credit card sales volume for the month. This calculation gives you a comprehensive measure of program cost as a percentage of sales. Once this amount is known, multiple offers can be meaningfully compared, even if they have widely diverse pricing.